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45^ HARVARD LAW REVIEW. 



COLLATERAL ATTACK ON INCORPORATION. 
A. DE FACTO CORPORATIONS. 

Dedicated to Professor Langdell. 

AB, and C wished to engage in the business of retailing ice. 
j By statute it was provided that if any three persons did 
specified acts, they acquired the privilege of engaging, as a cor- 
poration, in any designated business. A, B, and C, intending in 
good faith to avail themselves of the provisions of this statute, did 
all the acts required except one. By inadvertence, no statement 
of the amount of capital to be employed was made in the certifi- 
cate of incorporation. Believing that they had received the fran- 
chise of the state to act as an artificial person, they assumed, as 
such person, to engage in the designated business for a number of 
months. They employed D, and he, while delivering ice and solely 
by reason of his own negligence, injured E. The alleged corpora- 
tion has become insolvent, and E seeks to establish that A, B, and 
C are personally responsible for the tort to him. 

" But," say A, B, and C, " although we were not a dejure corpo- 
ration, clearly we were a de facto corporation. It is for the state to 
grant the franchise to be a corporation, and is it not therefore for 
the state alone to complain if persons usurp that franchise? Is it 
not well settled that, except as against the state, a de facto cor- 
poration is just as good as a dejure corporation? Has it not been 
written that the existence of a corporation shall not be attacked 
collaterally?" It will be the attempt of this article to meet these 
questions. 

The doctrine of de facto public officers was established at a 
comparatively early date. Suppose that a justice of the peace 
has authority to issue warrants of distress. The law has created 
the office. A is generally reputed to be entitled to it, and is 
openly exercising its powers. He issues a warrant, and B, be- 
lieving that A is a justice of the peace, acts under the warrant 
and distrains the goods of C. C sues B for the trespass, and 
shows that A, owing to his failure to take a certain oath, was 



DE FACTO CORPORATIONS. 457 

riot authorized to act as a justice. The courts protect B. 1 It is 
not to be expected that those who have occasion to deal with a 
person exercising the powers of a public office shall examine with 
particularity into all the circumstances affecting his appointment 
(or election) and qualification, particularly as he is under no duty 
to disclose the pertinent evidence. If persons dealing with those 
actually exercising the powers of public offices were held to do so 
at their peril, the business of the community could not be con- 
ducted with reasonable despatch. Moved by these urgent consid- 
erations of public policy, the courts have felt themselves justified 
in giving, for the benefit of a person dealing in good faith with a 
de facto public officer, the same effect to his acts as would be given 
to the acts of a de jure officer. 

Is the law of corporations analogous? The owner of land pur- 
ports to grant it to the M corporation, and M, the alleged corpor- 
ation, to grant it to A. A brings ejectment against X, a stranger 
to the title. If M was a de facto corporation, A should be allowed 
to prevail. A large and increasing proportion of business transac- 
tions involve the acceptance of a title purporting to pass (or to 
have passed) from a corporate grantor or vendor. The consider- 
ations of public policy moving the courts to facilitate such trans- 
actions may not be so urgent as those respecting transactions with 
public officers, but they have great force. And the courts hold 
that a de facto corporation may be a conduit of title. 2 



1 Margate Co. v. Hannam, 3 B. & Aid. 266. See also Leak v. Howel, 2 Cro. Eliz. 

533- 

2 Denver v. Mullen, 7 Colo. 345, 358 (lessees of a de facto corporation protected) ; 
Duggan v. Colorado Co., 11 Colo. 113 (mortgagee protected) ; Georgia Co. v. Mercan- 
tile Co., 94 Ga. 306 (mortgagee protected) ; Finch v. Ullman, 105 Mo. 255 (grantee 
maintained ejectment) ; Crenshaw v. Ullman, 113 Mo. 633; Lusk v. Riggs, 102 N. W. 
Rep. 88 (Neb.); Saunders v. Farmer, 62 N. H. 572 (grantee maintained a writ of 
entry); Hackensack Co. v. DeKay, 36 N. J. Eq. 548, 559 (mortgagee protected); 
Society Perun v. Cleveland, 43 Oh. St. 481 (grantees protected, although state had 
maintained quo warranto proceedings against the de facto corporation). 

See also the reasoning of the court in Quinn v. Shields, 62 la. 129, 139; Keene v. 
Van Reuth, 48 Md. 184, 193; East Norway Church v. Froislie, 37 Minn. 447, 450; 
Elizabsthtown Co. v. Green, 49 N. J. Eq. 329, 337 ; American Co. v. Heidenheimer, 
80 Tex. 344, 348; Ricketson v. Galligan, 89 Wis. 394. In Fay v. Noble, 7 Cush. 
(Mass.) 188, the plaintiff did not ask for relief on this ground. 

A fortiori, a court may hold that slight evidence of due incorporation is sufficient 
to make a prima facie case (see note 15). See Hamilton v. McLaughlin, 145 Mass* 
20 ; Tarpey v. Deseret Co., 5 Utah 494. 

If the defendant has dealt with the de facto corporation (under which plaintiff claims) 
as a corporation, this precludes him from attacking its existence (see note 33). Fams- 



458 HARVARD LAW REVIEW. 

Thege doctrines do not rest upon any principle of estoppel. 
There is no basis for any argument addressed ad hominem, — 
the plaintiff who sued because his goods were distrained had 
never dealt with the alleged justice of the peace, and the de- 
fendant who resisted the attempt to eject him had never dealt 
with the alleged corporation. The doctrines must find their sup- 
port in considerations of public policy. 3 

The doctrine of de facto public officers is applied only for the 
benefit of persons dealing with such officers. It is in no wise 
remedial to the de facto officer himself. He cannot enforce a right 
incident to the office, 4 and if he assumes to do an act which would 
be a tort were it not for the protection of the office, he is, notwith- 
standing that he acted in the best of faith, liable for the tort. 5 

worth v. Drake, n Ind. 101 ; Hasselman v. U. S. Mortgage Co., 97 Ind. 365 ; Jones v. 
Hale, 32 Ore. 465 ; Douglas County v. Bolles, 94 U. S. 104 (a municipal corporation 
is bound by bonds issued for stock in a de facto railroad corporation and sold by the 
railroad corporation); County of Leavenworth v. Barnes, 94 U. S. 70; Andrews v. 
National Foundry, 77 Fed. Rep. 774; Toledo Co. v. Continental Trust Co., 95 Fed. 
Rep. 497. See also Sherwood v. Alvis, 83 Ala. 115; Goodrich v. Reynolds, 31 111. 
490 ; Mitchell v. Deeds, 49 111. 416; Snyder v. Studebaker, 19 Ind. 462 ; Brown v. Phil- 
lipps, 16 la. 210; Franklin v. Twogood, 18 la. 515, 524; Ragan v. McElroy, 98 Mo. 349; 
Briar Co. v. Atlas Works, 146 Pa. St. 290; County of Macon v. Shores, 97 U. S. 272; 
Close v. Gleenwood Cemetery, 107 U. S. 466; Beekman v. Hudson River Co., 135 Fed. 
Rep. 3. 

A fortiori, the fact of such dealing may properly be held to make a prima facie case 
of incorporation. See Williams v. Cheney, 3 Gray (Mass.) 215; Topping v. Bickford, 
4 Allen (Mass.) 120; Den v. Van Houten, 10 N. J. L. 270; Ryan v. Martin, 91 N. C. 
464. Cf. Hungerford Bank v. Van Nostrand, 106 Mass. 559. 

On the question of good faith, see note 13. The grantee from a de facto corpora- 
tion should be protected, if he has acted in good faith, even though the attempt to 
form the corporation was not made in good faith. Duggan v. Colorado Co., 11 Colo. 
113, 117 ; Elizabethtown Co. v. Green, 49 N. J. Eq. 329, 337. Cf. Doyle v. Mizner, 40 
Mich. 160. And it is submitted that the courts should refuse to inquire whether per- 
sons asserting a title derived from a de facto corporation had notice of the defective 
organization at the time of their purchase, and that therefore a de facto corporation 
should be held to have a marketable title. It was so held in Lancaster v. Amsterdam 
Co., 140 N. Y. 576, 583. (It may also be noted that the courts will protect the grantee 
of a corporation, even though the acquisition of the land by the corporation was ultra 
vires, and the grantee is charged with constructive notice of the powers of the corpo- 
ration.) Where the sole question before the court is as to the capacity of an alleged 
corporation to be a conduit of title, a wide scope may very properly be given to the 
de facto doctrine. 

3 Consideration is omitted of the questions, (a) whether the de facto doctrine is 
available to the state in criminal prosecutions, and {i) whether collateral attack may 
ever be made upon the existence of a de facto municipal corporation. 

* Dolan v. New York, 68 N. Y. 274. 

5 Short v. Symmes, 150 Mass. 298. 



DE FACTO CORPORATIONS. 459 

The question therefore becomes this : is there any doctrine of de 
facto corporations (where there is no basis for the argument ad 
komineni) which goes beyond the analogy of the doctrine of de facto 
public officers, and is remedial to the associates themselves? 

Some rights may be lawfully acquired forthwith by mere appro- 
priation. Thus in the case of wild animals, of abandoned chat- 
tels, of land made vacant by the death of a tenant pur autre vie. 
But no court has ever held, or intimated, that the franchise to 
be a corporation may be lawfully acquired forthwith by mere 
appropriation. 

Many rights may be lawfully acquired by appropriation con- 
tinued for a considerable lapse of time, under the operation of 
statutes of limitation, or by force of analogies from such statutes, 
or by force of artificial presumptions of a lost grant. The fran- 
chise to be a corporation may be thus lawfully acquired. 6 

If A is in the actual possession of property belonging to X, then, 
even though A obtained such possession wrongfully, B, who has 
himself no right to the property, must not disturb A's possession. 
Such a rule works no injustice to B, and tends to preserve the 
public peace. 

But does the law ever permit A, who has usurped a right, to 
require B, an innocent stranger, to submit to an affirmative as- 
sertion of such right against him? The propositions of the pre- 
ceding three paragraphs are no authority for such a doctrine. 

A deed is placed in escrow to be delivered to A when A executes 
a bond to support B. A never executes a bond, but he in fact 
supports B and assumes in good faith to act as owner of the prop- 
erty. He does not thereby acquire title. 7 

A father leaves a child with a charitable institution. The insti- 
tution has a statutory right, upon the performance of specified acts, 
to apprentice the child. Most, but not all, of the specified acts are 
performed, and the institution assumes to apprentice the child 
to the defendant, who believes he has become its master. If the 
father wishes to resume the support of the child, it is difficult to 
see how the " de facto master " can successfully resist him. 8 

6 Robie v. Sedgwick, 35 Bavb. (N. Y.) 319, 326; King v. Beardwell, 2 Keb. 52; 
Crafts of Mercers v. Hart, 1 C. & P. 113. See also State v. Bailey, 19 Ind. 452. 

' See Hinman v. Booth, 21 Wend. (N. Y.) 267. 

8 The case put in the text was suggested by People v. Weissenbach, 60 N. Y. 385. 
It was there held that the failure of the respondent to give a bond might give the child 



460 HARVARD LAW REVIEW. 

A and B went through a ceremony which they believed to con- 
stitute them man and wife. But the person assuming to officiate 
had no power to marry and (under the laws of the state where the 
ceremony was performed) no legal marriage was effected. A sues 
C for alienating the affections of B, his wife. If C had alienated 
the affections of B, A may well, in some proper form, be given 
redress against him. But how can a man, who has not been 
married, maintain an action for alienating the affections of his 
wife? 

A dies. B assumes, without right, to act as his executor. Cred- 
itors of A may take him at his assertion; debtors of A, paying 
him in good faith, may perhaps be protected ; but B himself can- 
not maintain an action to enforce any right belonging to the 
estate. 9 

We have already seen that a de facto public officer cannot main- 
tain an action to enforce a right incident to the office, or avail him- 
self of the protection of the office against liability for a tort. 10 

Possibly a disseisor was allowed affirmatively to assert rights 
incident to the ownership of the land, but this is not clear. In any 
event, the conditions of society are now so different from those 
prevailing when the doctrine of disseisin was established and 
developed that, it is submitted, the reasons for doctrines remedial 
to disseisors have ceased to exist, except so far as they involve the 
policy of quieting titles after a lapse of time. Analogies from the 
old law of disseisin would be as unsafe as analogies from the old 
law of tortious conveyances. It may, moreover, be added that the 
doctrine of disseisin itself seems to have been established primarily 
for the benefit of the lord, and not for the benefit of the disseisor. 

If A has made an expenditure in good faith, believing that he 
was thereby obtaining a legal right, and he did not obtain the 
right, it may well be that he is a proper object of sympathy. But 
is this sympathy to be carried to the extent of forcing B, himself 
quite innocent of any wrong-doing, to submit to an exercise of this 
right by A? What end of justice is thereby achieved? If A has 
a certain right, he is not responsible for damage done to E ; if he 
does not have it, he is responsible. How can he be said to have 
acquired the right, when he has not performed the conditions 

a right to avoid the indentures, but that the father could not take advantage of this 
right in the child. See note 12. 

9 1 Williams, Executors, 10 ed., 695. 
10 See notes 4 and 5. 



DE FACTO CORPORATIONS. 46 1 

precedent to its acquisition, but has merely performed most of 
these conditions, and acted upon the mistaken belief that he had 
performed all? Is he to be allowed to lift himself by his own 
boot-straps? It is fundamental that, while an equity may be swept 
away for the benefit of a person who has made an expenditure in 
good faith, a legal gap will not be bridged. 

If then (to return to the case put in the opening paragraph) A, 
B, and C are allowed to protect themselves from personal liability 
for the tort done to E, on the ground that, in appointing D as 
agent, they were exercising a right obtained from the state to act 
as an artificial person, this must rest upon some doctrine peculiar 
to the law of corporations. 

Courts have frequently used the expression that the existence of 
a corporation cannot be attacked collaterally. Suppose the legis- 
lature grants a charter to the X corporation, and provides therein 
that in case a certain act is not done within a time specified the 
charter shall be void. The act is not done within the time speci- 
fied, and thereafter X sues A. A seeks to defend on the ground 
that X, by its failure to do the act, ceased to be a corporation. 
But, although the word " void " was used, the courts would ordina- 
rily construe this to mean " voidable, at the election of the state." u 
If such construction is adopted, it follows that, until the state has 
exercised its option to declare the charter void, X still lives. A 
does not represent the state, and cannot enforce the state's option. 
It is well settled, therefore, that no collateral attack can be made 
upon the existence of a corporation by reason of facts justifying 
the state in declaring the corporate life forfeited. 12 

11 Brown v. Wyandotte Co., 68 Ark. 134; Atchafalaya Bank v. Dawson, 13 La. 497 ; 
Matter of New York Co., 148 N. Y. 540. Cf. Brooklyn Co. v. Brooklyn, 78 N. Y. 524. 

12 Harris v. Nesbit, 24 Ala. 398; Bloch v. O'Conner Co., 129 Ala. 528; Hammett 
v. Little Rock Co., 20 Ark. 204; Mississippi Co. v. Cross, 20 Ark. 443; West v. Caro- 
lina Co., 31 Ark. 476; Searcy v. Yarnell, 47 Ark. 269; Union Co. v. Rocky Mountain 
Bank, 1 Colo. 531 ; Spencers. Champion, 9 Conn. 536, 543; Kellogg v. Union Co., 12 
Conn. 7; Pearce v. Olney, 20 Conn. 544, 556; Pahquioque Bank v. Bank of Bethel, 36 
Conn. 325; Young v. Harrison, 6 Ga. 130; Union Branch Co. v. East Tennessee Co., 
14 Ga. 327 ; Atlanta v. Gate City Co., 7: Ga. 106 ; Wilmans v. Bank of Illinois, 6 111. 
667; Thomas v. South Side Co., 2*18 111. 571 ; John v. Farmers' Bank, 2 Blackf. (Ind.) 
367 ; Brookville Co. v. McCarty, 8 Ind. 392 ; Logan v. Vernon Co., 90 Ind. 552 ; Bar- 
ren Creek Co. v. Beck, 99 Ind. 247 ; Carey v. Cincinnati Co.. 5 la. 357 ; Bank of Galli- 
opolis v. Trimble, 6 B. Mon. (Ky.) 599; Atchafalaya Bank v. Dawson, 13 La. 497 ; 
State v. Fagan, 22 La. Ann. 545; Penobscot Corporation v. Lamson, 16 Me. 224; 
Hamilton v. Annapolis Co., 1 Md. Ch. 107 ; University of Maryland v. Williams, 9 Gill 



462 HARVARD LAW REVIEW. 

But this doctrine has, save by confusion, nothing to do with the 
doctrine of de facto corporations. It is concerned not with the 
manner in which corporate life may be gained, but with the man- 
ner in which corporate life may be lost. There is no defect what- 
ever in the formation of the corporation ; no one questions but 

& J. (Md.) 365; Planters' Bank v. Bank of Alexandria, 10 Gill & J. (Md.) 346; Mus- 
gravew. Morrison, 54 Md. 161 ; Charles River Bridge v. Warren Bridge, 7 Pick. (Mass.) 
344, 371; Cahill v. Kalamazoo Co., 2 Doug. (Mich.) 124; Montgomery v. Merrill, 18 
Mich. 338; Toledo Co. v. Johnson, 49 Mich. 148; Bohannon v. Binns, 31 Miss. 355; 
Bank of Missouri v. Merchants' Bank, 10 Mo. 123; Bank of Missouri v. Snelling, 35 
Mo. 190; State v. Carr, 5 N. H. 367, 370; Peirce v. Somersworth, 10 N. H. 369; 
Sewall's Falls Bridge v. Fisk, 23 N. H. 171 ; New Jersey Co. v. Long Branch Com- 
missioners, 39 N. J. L. 28 ; Jersey City Co. v. Consumers Gas Co., 40 N. J. Eq. 427 ; 
Elizabethtown Co. v. Green, 46 N. J. Eq. 118; West Jersey Co. v. Camden Co., 52 
N. J. Eq. 452, 464; Merrick v. Van Santvoord, 34 N. Y. 208, 222 ; Matter of N. Y. Ele- 
vated Co., 70 N. Y. 327 ; Matter of Kings County Elevated Co., 105 N. Y. 97 ; Matter 
of Cutchogue, 131 N. Y. 1 (see also 46 Barb. (N. Y.) 361 ; 6 Cow. (N. Y.) 23; 5 Duer 
(N. Y.) 676; 7 How. Pr. (N. Y.) 476; 4 N. Y. Supp. 177 ; 3 Sandf. Ch. (N. Y.) 625, 652; 
23 Wend. (N. Y.) 254. Cf. 19 Johns. (N. Y.) 456 ; Webb v. Moler, 8 Oh. 548 ; Irvine v. 
Lumbermen's Bank, 2 Watts & S. ( Pa.) 190 ; Coil v. Pittsburgh College, 40 Pa. St. 439 ; 
Twelfth-St. Co. v. Philadelphia Co., 142 Pa. St. 580, 593 ; Hinchman v. Philadelphia 
Road, 160 Pa. St. 150; Gas Co. v. Downingtown, 193 Pa. St. 255; Olyphant Co. v. 
Olyphant, 196 Pa. St. 553 ; Windsor Co. v. Carnegie Co., 204 Pa. St. 459 ; LaGrange 
Co. v. Rainey, 7 Cold. (Tenn.) 420; Anderson v. Railroad, 91 Tenn. 44; Connecticut 
Co. v. Bailey, 24 Vt. 465; Crump v. U. S. Co., 7 Grat. (Va.) 352; Moore v. Schoppert, 
22 W. Va. 282 ; Lumber Co. v. Ward, 30 W. Va. 43 ; Mackall v. Chesapeake Co., 94 
U. S. 308; Van Wyck v. Knevals, 106 U. S. 360 (see also 28 Fed. Cas. 1153; 5 Sawy. 
(U. S.) 44) ; Robinson v. London Hospital, 10 Hare 19. 

A private individual cannot institute quo warranto proceedings to have the charter 
of a corporation declared forfeited. North v. State, 107 Ind. 356; Commonwealth v. 
Union Co., 5 Mass. 230; Attorney General v. Adonai Corporation, 167 Mass. 424; 
State v. Paterson Co., 21 N.J. L. 9; Commonwealth v. Farmers' Bank, 2 Grant (Pa.) 
392; Western Pa. Company's Appeal, 104 Pa. St. 399. 

If the legislature is induced by fraud to pass a special act of incorporation, the 
corporation comes into being, and the fraud is only a cause of forfeiture by the 
state. Charles River Bridge v. Warren Bridge, 7 Pick. (Mass.) 344, 370. Similarly, 
if the legislature has by a special or general law authorized a designated official or 
body to issue a charter or a certificate (which is made conclusive evidence of incor- 
poration) upon the performance of conditions precedent, and the official or body is 
induced by fraud to issue such charter or certificate. Rice v. Bank of Commonwealth, 
126 Mass. 300 (by Mass. L. 1903, c. 437, § 12, the certificate of the Secretary of 
State " shall have the force and effect of a special charter ") ; Nat'l Bank v. Rockefeller, 
195 Mo. 15, 42 (whether this was a sound construction of the statute in question, 
quare); Centre Co. v. McConaby, 16 Serg. & R. (Pa.) 140, 1 Pen. & W. (Pa.) 426, 
43 r ; Travaglini v. Societa Italiane, 5 Pa. Dist. 441 ; German Insurance Co. v. Strahl, 
13 Phila. 512. See also Pattison v. Albany Ass'n, 63 Ga. 373; U. S. Vinegar Co. v. 
Schlegel, 143 N. Y. 537 ; Wells Co. v. Gastonia Co., 19S U. S. 177, 185; Pilbrow v. 
Pilbrow's Co., 5 C. B.440, 471, 472 (commenting on § 18 of the Companies Act of 1862). 
Similarly, if the designated official or body is induced by fraud to do an act the per- 
formance of which is one of the conditions precedent to incorporation. Duke v. 



DE FACTO CORPORATIONS. 463 

that it came into existence ; the only question is whether it still 
continues in existence. The use of this doctrine to support the 
contention that, if certain persons assume to have the right to act 
as a corporation, all but the state must submit quietly to their 
exercise of such usurped right, arises, it is not too much to say, 
from a profound misconception. 

Have I exposed myself to the retort courteous? Perhaps the 
misconception is in supposing that any one does, deliberately, 

Cahawba Co., 16 Ala. 372; Litchfield Bank v. Church, 29 Conn. 137, 148; Jones v. 
Dana, 24 Barb. (N. Y.) 395; Tar River Co. v. Neal, 3 Hawks (N. C.) 520. 

Wherever 'he legislature has authorized the formation of a corporation upon the 
performance of certain conditions precedent, the courts must necessarily determine 
whether the legislature intended to require a certain mental state in the corporators 
as one of these conditions. Considering the difficulty of proof on such a point, the 
courts may well incline against such a construction of the law. Thus if the legislature 
has authorized persons to form a corporation by filing a certain certificate, and the 
certificate filed contains the required matter and the statements therein are true, a 
corporation is formed, even though the corporators secretly intend to make an unlaw- 
ful use of the corporation so formed. See Importing Co. v. Locke, 50 Ala. 332, 334; 
Niemeyer v. Little Rock Ry., 43 Ark. m, 120; Aurora Co. v. Lawrenceburgh, 56 
Ind. 80, 87; Lincoln Ass'n v. Graham, 7 Neb. 173; Attorney General v. Stevens, 
Saxt. Ch. (N. J.) 369, 378; National Docks Co. v. Central Railroad, 32 N. J. Eq. 755, 
759 ; Attorney General v. American Tobacco Co., 55 N. J. Eq. 352, 369 ; aff. 56 N. J. 
Eq. 847 ; Buffalo Co. v. Hatch, 20 N. Y. 157, 159; Windsor Co. v. Carnegie Co., 204 
Pa. St. 459, and cases cited. See also Terhune v. Midland Co., 38 N. J. Eq. 423; 
Wellington Co. v. Cashie Co., 114 N. C. 690; Cochran v. Arnold, 58 Pa. St. 399, 405. 
Cf. cases cited below. On the formation of a corporation and transfer of property 
thereto with intent to give the federal courts jurisdiction, see Irvine Co. v. Bond, 74 
Fed. Rep. 849. 

Although fraud in procuring a charter is only a cause of forfeiture, fraud by the 
associates may prevent incorporation. Thus (to put a plain case) where the legislature 
requires, as a condition precedent, that a certain subscription be made " in good faith." 
Whether, when fraud prevents incorporation, collateral attack will be permitted upon 
the existence of the alleged corporation is not a question within the law of de facto 
corporations (see third paragraph of note 13). But there is no sweeping rule that such 
attack may never be made. Christian Co. v. Fruitdale Co., 121 Ala. 340; Carey v. 
Cincinnati Co., 5 la. 357; Montgomery v. Forbes, 148 Mass. 249; Cleaton v. Emery, 
49 Mo. App. 345 ; Davidson v. Hobson, 59 Mo. App. 130 ; Farnham v. Benedict, 107 
N. Y. 159, 169; Booth v. Wonderly, 36 N. J. L. 250; Hill v. Beach, 12 N. J. Eq. 31 ; 
Jersey City Co. v. Dwight, 29 N. J. Eq. 242 (the learned vice-chancellor who decided 
this case assumed, 46 N.J. Eq. 116, that it could not stand with National Docks Co. 
v. Central Co., 32 N. J. Eq. 755. But see 49 N. J. Eq. 329, 335) ; Elizabethtown Co. 
v. Green, 49 N. J. Eq. 329 (by the five dissenting judges. Whether the majority was 
opposed on this point does not appear. The decision is explained in 52 N. J. Eq. in, 
144, on a ground consistent with this opinion by the dissenting judges) ; Brundred v. 
Rice, 49 Oh. St. 640; Chicora Co. v. Crews, 6 S. C. 243, 275; McGrew v. City Prod- 
uce Exchange, 85 Tenn. 572; Le Warne v. Meyer, 38 Fed. Rep. 191. See also Salo- 
mon v. Broderip, [1897] A. C. 22, 43. Cf. Laflin Co. v. Sinsheimer, 46 Md. 315; Gow 
v. Collin Co., 109 Mich. 45 ; Cochran v. Arnold, 58 Pa. St. 399, 405. 



464 HARVARD LAW REVIEW. 

contend that the existence of an alleged corporation can never be 
attacked collaterally. Assume the contention to be that the exist- 
ence of an alleged corporation cannot be attacked collaterally, if 
the assumption of the right to be a corporation is made under 
peculiarly extenuating circumstances. Assume further that these 
extenuating circumstances are : (1) that an attempt to incorporate 
has been made resulting in a colorable corporate organization; 
(2) that there was a law authorizing the formation of such a corpo- 
ration as was attempted; (3) that there has been user of some of 
the powers which such a corporation would possess ; and (4) that 
the persons seeking to prevent collateral attack acted in good 
faith. 13 Under such circumstances, why should not the courts 

13 If the state grants to certain persons the privilege of acting as an artificial per- 
son, they are a corporation de jure. Whenever persons assume to act as an artificial 
person, without the authority of the state, it might properly be said that they are 
a corporation de facto. Sheer usurpation of the corporate privilege is a fact, no less 
than usurpation under extenuating circumstances. If this broad conception of a de 
facto corporation had been taken, then the subject of de facto corporations would have 
covered the whole subject of the usurpation of corporate power. 

But it is clear that it has not been taken. Thus, persons who have been granted 
the privilege to act as an artificial person for some purposes may assume so to act 
for other purposes. When they leap the bounds of the privilege granted them, their 
act is a usurpation of corporate power. But the law of ultra vires transactions is not 
treated by the courts as a branch of the law of de facto corporations. 

Similarly, even where the associates have not been granted the corporate privilege 
for any purpose, the courts have, in analogy to the law of de facto officers, and by a 
usage now altogether too well established to be profitably questioned, confined the 
conception of a de facto corporation within the bounds stated in the text. If associates 
usurp the corporate privilege when there is no law authorizing such a corporation as 
they assert themselves to be, collateral attack may or may not be allowed on the ex- 
istence of the alleged corporation, but the law of de facto corporations does not control. 
Similarly, where the associates have not even a colorable organization, or where per- 
sons who have not acted in good faith seek to prevent the collateral attack. These 
cases form a branch of the law on the usurpation of corporate power, but not of the 
law on de facto corporations. This article deals only with de facto corporations in the 
narrow sense established by usage, — usurpation of corporate power under the pe- 
culiarly extenuating circumstances stated in the text. 

To speak of these circumstances in detail. 

1. The attempt to incorporate must have gone so far as to result in a colorable corporate 
organization. McLennan v. Hopkins, 2 Kan. App. 260 ; Johnson v. Corser, 34 Minn. 
355 (see 52 Minn. 243) ; Abbott v. Omaha Co., 4 Neb. 416 ; McLeary v. Dawson, 87 
Tex. 524, 538 (" a self-constituted body which was not even a de facto corporation") ; 
Bergeron v. Hobbs, 96 Wis. 641. But cf. the language of the court in Methodist 
Church v. Pickett, 19 N. Y. 482, 485. 

2. There must have been a law authorizing the formation of such a corporation as mas 
attempted. Duke v. Taylor, 37 Fla. 64 ; American Co. v. Minnesota Co., 157 111. 641 ; 
Snyder v. Studebaker, 19 Ind. 462 ; Eaton v. Walker, 76 Mich. 579 ; Bradley v. Rep- 
pell, 133 Mo. 545 ; St. Louis Ass'n v. Hennessy, 11 Mo. App. 555; Evenson v. Elling- 



DE FACTO CORPORATIONS. 465 

refuse to allow any one but the state to call attention to any slip 
that was made in the attempt to form the corporation? At first 
blush the doctrine seems harmless and commendable, — to be 

son, 67 Wis. 634; Davis v. Stevens, 104 Fed. Rep. 235. Cf. Smith v. Sheeley, 12 Wall. 
(U.S.) 358. 

If there is a law authorizing the formation of such a corporation, it is not fatal that 
the attempt to incorporate was under a different law. Georgia Co. v. Mercantile Co., 
94 Ga. 306. Cf. Welch v. Old Dominion Co., 10 N. Y. Supp. 174. 

A dejure corporation maybe formed under a law passed by a de facto legislature. 
U. S. v. Insurance Companies, 22 Wall. (U. S.) 99. 

3. There must have been user of some of the powers which such a corporation would 
possess. Without user there would be no assumption of corporate power. See Emery 
v. De Peyster, 77 N. Y. App. Div. 65, 67 ; Elgin Co. v. Loveland, 132 Fed. Rep. 41, 45. 

4. The persons seeking to prevent collateral attack must have acted in good faith. In 
defining the limits of the de facto doctrine, the courts have sometimes made no express 
mention of good faith. Owensboro Co. v. Bliss, 132 Ala. 253; Baker v. Neff, 73 Ind. 
68 ; Doty v. Patterson, 155 Ind. 60, 64 ; Finnegan v. Noerenberg, 52 Minn. 239; Gibbs' 
Estate, 157 Pa. St. 59, 69; Toledo Co. v. Continental Trust Co., 95 Fed. Rep. 497, 
508. But in these cases no contention was made that the associates had not acted in 
good faith. 

Express mention of good faith is usual. Duggan v. Colorado Co., 11 Colo. 113; 
American Co. v. Minnesota Co., 157 111. 641, 652; Stanwood v. Sterling Co., 107 111. 
App. 569; Williamson v. Kokomo Ass'n, 89 Ind. 389; Hasselman v. U. S. Mortgage 
Co., 97 Ind. 365 ; Haas v. Bank of Commerce, 41 Neb. 754 ; Vanneman v. Young, 52 
N. J. L. 403; Elizabethtown Co. v. Green, 49 N. J. Eq. 329, 338 ; Hagerman v. Ohio 
Ass'n, 25 Oh. St. 186, 200; Society Perun v. Cleveland, 43 Oh. St. 481; Marsh v. 
Mathias, 19 Utah 350 ; Gilkey v. How, 105 Wis. 41, 45 ; Tulare District v. Shepard, 
185 U. S. 1, 16. 

If the attempt at incorporation is not made in good faith, but persons purchase the 
alleged stock in good faith, they should not be held personally liable to those who have 
contracted with the corporation. American Co. v. Heidenheimer, 80 Tex. 344 (see 
note 33). In Minor v. Mechanics Bank, 1 Pet. (U. S.) 46, 66, Story, J., said: "It 
would be extremely difficult to maintain, upon general principles of law, that a private 
fraud, between the original subscribers and commissioners, could be permitted to be 
set up, to the injury of subsequent purchasers of the stock, who became bona fide 
holders, without any participation or notice of the fraud." 

Ordinarily, the same result will be reached whether good faith is required in those 
who attempted incorporation or in those who now seek to prevent collateral attack 
upon incorporation. But it is submitted that American Co. v. Heidenheimer is a 
decision within the limits of the de facto doctrine, and that therefore the requirement 
as to good faith may properly be stated in the form used in the text. 

The doctrine of de facto corporations usually arises where there has been an attempt 
to incorporate under a general law. But it is not confined to such cases. The legisla- 
ture might by special act grant a charter which was to take effect upon the perform- 
ance of certain conditions precedent. Such charter, it is submitted, would supply the 
place of the first and second requirements stated in the text. See Lucas v. Bank of 
Georgia, 2 Stew. (Ala.) 147; Gaines v. Bank of Mississippi, 12 Ark. 769; Middlesex 
Husbandmen v. Davis, 3 Met. (Mass.) 133; Utica Co. v. Tilman, 1 Wend. (N. Y.) 
555 ; Turnpike Co. v. McCarson, 1 Dev. & B. (N. C.) 306; Searsburgh Co. v. Cutler, 
6 Vt. 315, 322; Bank of Manchester v. Allen, 11 Vt. 302. 

3° 



466 HARVARD LAW REVIEW. 

intended merely to save examination into all the details of the 
formation of corporations. 14 

In answer. In the first place, it is to be noted that, if the exist- 
ence of a corporation is only collaterally in issue, it is well settled 
that proof of facts sufficient to satisfy the requirements of the 
de facto doctrine is sufficient to make a primd facie case. 16 In 

u It would be easy to accumulate dicta in support of such a doctrine. See, for 
example, Doty v. Patterson, 155 Ind. 60, 64 (but cf. the decisions in Busenback v. 
Attica Co., 43 Ind. 265 ; Indianapolis Co. v. Herkimer, 46 Ind. 142) ; Buffalo Co. v. 
Cary, 26 N. Y. 75, 77 (but cf. the decisions in Dorris v. Sweeney, 60 N. Y. 463, 467 ; 
N. Y. Cable Co. v. N. Y., 104 N. Y. 1, 43) ; Cochran v. Arnold, 58 Pa. St. 399, 405 (but 
cf. the decision in Guckert v. Hacke, 159 Pa. St. 303) ; Gilkey v. How, 105 Wis. 41, 46 
(but cf. the decision in Slocum v. Head, 105 Wis. 431) ; New Orleans Co. v. Louisiana, 
180 U. S. 320, 328 (but cf. the more restrained language by the same learned justice in 
Tulare District v. Shepard, 185 U. S. 1, 14, 17). 

In New Jersey it has been laid down that equity will not, at the instance of a private 
individual, enjoin a de facto corporation from the exercise of powers which it would 
possess if a de jure corporation. Elizabethtown Co. v. Green, 49 N. J. Eq. 329, 331, 
332. Equity is no doubt loath to determine questions as to the legal formation of cor- 
porations (cf. the determination of questions as to the title of real estate); and, more- 
over, should not entertain a bill by a private individual which is, in substance, a quo 
warranto proceeding (see second paragraph of note 12). But equity has jurisdiction 
to determine whether a corporation has been legally formed. The question was de- 
termined in the early case of Hill v. Beach, 12 N. J Eq. 31, and again in Union Water 
Co. v. Kean, 52 N. J. Eq. in, 122, where Pitney, V. C, upholds the jurisdiction in an 
elaborate opinion. (Cf. the language of the court in National Docks Co. v. Central Rail- 
road Co., 32 N. J. Eq. 755 ; West Jersey Co. v. Cape May Co., 34 N. J. Eq. 164 ; Ter- 
hune v. Midland Co., 38 N. J. Eq. 423 ; Attorney-General v. American Tobacco Co., 55 
N. J. Eq. 352, 368 ; aff. 56 N. J. Eq. 847 ; Cumberland Co. v. Clinton Co., 64 N. J. 
Eq. 521, 523.) And a bill to restrain the assertion of a corporate right directly against 
complainant will not ordinarily be in substance a quo warranto proceeding. It might 
as well be argued that the plea of nul tie/ corporation may never be permitted at law, 
because it is, firo tanto, a quo warranto proceeding. 

Now, Hamptons. Clinton Co., 65 N. J. L. 158 (see note 28) shows that at law there 
is no sweeping rule against collateral attack. See also Trenton Co. v. United Co., 60 
N. J. Eq. 500. Is the New Jersey law that, if a de facto corporation institutes proceed- 
ings to take A's land by eminent domain, he may successfully resist such proceedings, 
but that, even if immediate irreparable injury is being threatened, he may not resort 
to equity for an injunction ? It is submitted that National Docks Co. v. Central Co., 
32 N. J. Eq. 755, does not necessitate such a decision (see fourth paragraph of note 12). 

See also Denver Co. v. Denver Co., 2 Colo. 673 ; Independent Order Foresters v. 
United Order, 94 Wis. 234, 241. 

15 Lucas v. Bank of Georgia, 2 Stew. (Ala.) 147 ; Gaines v. Bank of Mississippi, 12 
Ark. 769 ; Memphis Co. v. Rives, 21 Ark. 302 ; Mix v. Bank of Bloomington, 91 111. 20 ; 
Eakright v. Logansport Co., 13 Ind. 404; Middlesex Husbandmen v. Davis, 3 Met. 
(Mass.) 133 ; Barrett v. Mead, 10 Allen (Mass.) 337 ; Merchants' Bank v. Glendon Co., 
120 Mass. 97; Utica Co. v. Tilman, 1 Wend. (N. Y.) 555; Eaton v. Aspinwall, 19 
N. Y. 119, 121 ; U. S. Vinegar Co. v. Schlegel, 143 N. Y. 537, 543 ; Turnpike Co. v. 
McCarson, 1 Dev. & B. (N. C.) 306; Searsburgh Co. v. Cutler, 6 Vt. 315,322; Bank of 
Manchester v. Allen, n Vt. 302. 



DE FACTO CORPORATIONS. 467 

the second place, it is to be noted that most failures to conform 
strictly to statutory provisions are not fatal to the formation of 
the corporation, {a) If a provision of the statute has not been 
exactly followed, the court may hold that there has been sub- 
stantial compliance. 16 (F) If some provision of the statute has 
not been followed at all, the court may hold such provision to 
be merely directory. 17 (V) If some mandatory provision has not 
been followed at all, the court may nevertheless hold that perform- 
ance of the acts specified in such provision was not intended to 
be a condition precedent to the existence of the corporation, — that 
non-performance was intended at most to be a ground for declaring 
the corporate existence forfeited. 18 In all these cases the associates 
gain authority to act as a corporation. 

See also Willard v. Trustees, 66 111. 55; Peoria Co. v. Peoria Co., 105 111. no; 
Cozzens v. Chicago Co., 166 111. 213; Hager's Town Co. v. Creeger, 5 Har. & J. (Md.) 
122; Bartlettw. Wilbur, 53 Md. 485, 498; Narragansett Bank v. Atlantic Silk Co., 3 Met. 
(Mass.) 282 ; Packard v. Old Colony Co., 168 Mass. 92 ; Canal Co. v. Paas, 95 Mich. 
372; Williams v. Bank of Michigan, 7 Wend. (N. Y.) 539; Wood v. Jefferson Bank, 
9 Cow. (N. Y.) 194; Bank of Toledo v. International Bank, 21 N. Y. 542; Williams- 
burgh Bank v. Solon, 136 N. Y. 465, 475 ; Augusta Co. v. Vertrees, 4 Lea (Tenn.) 75; 
Reynolds v. Myers, 51 Vt. 444 . 

16 Van Pelt v. Home Ass'n, 79 Ga. 439 ; Eakrightz/. Logansport Co., 13 Ind. 404; 
Thornton v. Balcom, 85 la. 198 ; Seaton v. Grimm, no la. 145; Buffalo Co. v. Hatch, 
20 N. Y. 157, 160; Ogdensburgh Co. v. Frost, 21 Barb. (N. Y.) 541 ; Thompson v. N. Y. 
Co., 3 Sandf. Ch. (N. Y.) 625, 652; Carpenter v. Frazier, 102 Tenn. 462; Rogers v. 
Danby Society, 19 Vt. 187, 191. 

17 Judah v. American Co., 4 Ind. 333 ; McClinch v. Sturgis, 72 Me. 288, 296 ; New. 
comb^. Reed, 12 Allen (Mass.) 362; Braintree Co. v. Braintree, 146 Mass. 482, 488; 
Mead v. Keeler, 24 Barb. (N. Y.) 20, 25 ; Rassbeck v. Desterreiches, 55 How. Pr. ( N. Y.) 
516 ; Ossipee Co. v. Canney, 54 N. H. 295, 312 ; Grays v. Turnpike Co., 4 Rand. (Va.) 
578, 581. See also Cross v. Pinckneyville Co., 17 111. 54 ; Busenback v. Attica Co., 
43 Ind. 265, criticizing Eakright v. Logansport Co., 13 Ind. 404. On whether the 
state may take advantage of failure to follow a directory provision, see Rose Hill Co. 
v. People, 115 111. 133; Jackson v. Crown Co., 21 Utah 1. Cf. Bank of U. S. v. Dan- 
dridge, 12 Wheat. (U. S.) 64, 80. 

18 Sparks v. Woodstock Co., 87 Ala. 294; Brown v. Wyandotte Co., 68 Ark. 134, 
140; Mitchell v. Rome Co., 17 Ga. 574; Boise City Co. v. Pinkham, 1 Idaho 790; 
Chiniquy v. Bishop of Chicago, 41 111. 148 (a corporation sole) ; Walton v. Riley, 85 
Ky. 413 (overruling 81 Ky. 300) ; Portland Co. v. Bobb, 88 Ky. 226; South Bay Co. 
v. Gray, 30 Me. 547 ; Lord v. Essex Ass'n, 37 Md. 320, 326 ; Hammond v. Straus, 
53 Md. 1, 14; Merrick v. Reynolds Co., 101 Mass. 381 ; Hawes v. Anglo-Saxon Co., 
lot Mass. 385, 395 ; McGinty v. Athol Co., 155 Mass. 183, 185; Narragansett Bank v. 
Atlantic Co., 3 Met. (Mass.) 282, 288; Boston Co. v. Moring, 15 Gray (Mass.) 211 ; 
Shakopee Co., 37 Minn. 91 ; Granby Co. v. Richards, 95 Mo. 106 ; St. Joseph Co. v. 
Shambaugh, 106 Mo. 557, 567 ; Vanneman v. Young, 52 N. J. L. 403 ; Plank Road Co. 
v. Chamberlain, 32 N. Y. 651, 655 ; Society of Cutchogue, 131 N. Y. (also 41 Barb. 
(N. Y.) 568; 1 Sandf (N. Y.) 158, 168); Hughesdale Co. v. Vanner, 12 R. I. 491; 
Cheraw Co. v. White, 14 S. C. 51 ; Harrod v. Hamer, 32 Wis. 162 ; Minora. Mechanics' 



468 HARVARD LAW REVIEW. 

We are dealing, therefore, only with a case where the court, on a 
sound construction of the statutes, finds the intent of the legisla- 
ture to have been that performance of a certain act should be a 
condition precedent to incorporation. 19 The legislature might, in- 
deed, have authorized the formation of two kinds of corporations, 
one good against the world, and one good against all but the 
state. But such statutes are rare. 20 The legislature has authorized 
the formation only of a corporation good against the world. It 
has declared that a certain act shall be performed before any such 
corporation shall come into existence. The act has not been per- 
formed. Is it proper, notwithstanding, for the court to allow the 
assertion of rights dependent upon incorporation? 

It is not for the court to create a corporation. The franchise to 

Bank, I Pet. (U. S.) 46,65; Wells Co. v. Gastonia Co., 198 U. S. 177; Young Co. v. 
Young Co., 72 Fed. Rep. 62; Ryland v. Hollinger, 117 Fed. Rep. 216. See also 
Southern Bank v. Williams, 25 Ga. 534; Hastings v. Amherst Co., 9 Cush. (Mass.) 
596, 600; Quincy Canal v. Newcomb, 7 Met. (Mass.) 276, 282; Raegener v. Hubbard, 
167 N. Y. 301, 306; Waterford Co. v. Dalbiac, 6 Exch. 443. 

19 For instances of such construction see Allman v. Havana Co., 88 111. 521, 526; 
Loverin v. McLaughlin, 161 111. 417, 425; Mclntire v. McLain Ass'n, 40 Ind. 104; 
Kaiser v. Lawrence Bank, 56 la. 104 ; Field v. Cooks, 16 La Ann. 153 ; Utley v. Union 
Co., 11 Gray (Mass.) 139, 141; Jersey City Co. v. Dwight, 29 N. J. Eq. 242, 247; 
Crocker v. Crane, 21 Wend. (N. Y.) 211 ; People v. Nelson, 46 N. Y. 477, 480 ; N. V. Co. 
v. N. Y., 104 N. Y. 1, 43 ; Card v. Moore, 68 N. Y. App. Div. 327, 331 ; aff. 173 N. Y. 
598; Guckert v. Hacke, 159 Pa. St. 303 ; Bergeron v. Hobbs, 96 Wis. 641 ; Elgin Co. 
v. Loveland, 132 Fed. Rep. 41, 45. 

20 In California, § 6 of Laws of 1850, c. 128, as amended by Laws of 1862, c. 124, 
provided : " The question of the due incorporation of any company, claiming in good 
faith to be a corporation under the laws of this state and doing business as such 
corporation, or of its right to exercise corporate powers, shall not be inquired into, col- 
laterally, in any private suit to which such de facto corporation may be a party." 
This was substantially reenacted as § 358 of the Civil Code. For decisions since the 
enactment of this statute, see 22 Cal. 434 ; 26 ibid. 286 ; 37 ibid. 354 ; 37 ibid. 538 ; 51 
ibid. 406 ; 55 ibid. 98 ; 67 ibid. 526 ; 70 ibid. 163 ; 72 ibid. 379 ; 80 ibid. 181 ; 82 ibid. 184 ; 
go ibid. 22; 97 ibid. 276; 100 ibid. 87; 102 ibid. 55; 103 ibid. 506; la* ibid. 334; 126 
ibid. 541 ; 128 ibid. 136; 130 ibid. 27 ; 137 ibid.441 ; 141 ibid. 713 ; 4 Sawy. (U. S.) 133; 
46 Fed. Rep. 709. See also § 2892, Comp. L. Dakota, cited in Davis v. Stevens, 104 
Fed. Rep. 235, and Code of Georgia (1895), § 1862, and 108 Ga. 345; 109 ibid. 666; 
121 ibid. 513. 

The Code of Iowa (1897), § 1636, which substantially reenacts the provision first 
adopted in § 704 of the Code of 1851, provides : " No person or persons acting as a cor- 
poration shall be permitted to set up the want of a legal organization as a defense to 
an action against them as a corporation, nor shall any person sued on a contract made 
with such an acting corporation, or sued for an injury to its property, or a wrong done 
to its interests, be permitted to set up a want of such legal organization in his defense." 
There is a similar statute in Kentucky. Comp. Stat. 1903, § 566. Except so far as these 
statutes dispense with the requirements for a de facto corporation (see third paragraph 
of note 13), it is submitted that they are only declaratory (see notes 24, 25, and 33). 



DE FACTO CORPORATIONS. 469 

be a corporation can be granted only by the legislature. Is the 
court not to respect this division of powers, but to make itself, de 
facto, a legislature? 

It may well be answered that it is not for the courts to create 
public officers any more than to create corporations; and yet 
the doctrine of de facto public officers is well established, and a 
doctrine of de facto corporations for the benefit of third persons 
has also found its place in the law. 21 

The question therefore reduces itself at last to a question of 
judgment. Are there considerations of public policy so urgent as 
to make it proper for the courts to allow persons to assert the 
right to be a corporation even when, on a sound construction of 
the legislative enactments, they have no such right? Considera- 
tions tending to an affirmative answer are that the courts should 
save time by refusing to go into the details of incorporation ; and 
that they should encourage the use of the corporate device by 
establishing a consolation doctrine to the effect that, if persons try 
to form a corporation and pretty nearly succeed, they shall have 
pretty nearly as many rights as though they had succeeded. Con- 
siderations tending to a negative answer are that the courts should 
not, directly or indirectly, take to themselves powers belonging to 
the legislature, and that it is anomalous to bridge a legal gap even 
in favor of a person who has made an expenditure in good faith. 

If there is a doctrine of de facto corporations, remedial to the 
associates themselves, the courts ought to enter upon it not lightly, 
but discreetly, advisedly. 

This is not to say that there may never be circumstances in which 
it is proper to apply such a doctrine. Suppose that A, owner of 
land, purports for a consideration to grant it to a de facto corpo- 
ration, and ejectment is brought, in the name of the corporation, 
against X, a stranger to the title. The associates, even if unin- 
corporated, would, it is submitted, at least be entitled in equity 
to require a conveyance from A, and at law to maintain ejectment 
in the name of A. 22 And it is the better opinion that full effect 

21 See note 2. 

22 There is authority that if a deed of real estate purports to run to a corporation, 
and there is no such corporation authorized by the state, the deed is void, and the 
grantor may successfully assert title to the land against the associates. Harriman v. 
Southam, 16 Ind. 190 (overruled in Snyder v. Studebaker, 19 Ind. 462) ; Douthitt v. 
Stinson, 63 Mo. 268 (distinguished in Reinhard v. Virginia Co., 107 Mo. 616, and White 
Oak Society v. Murray, 145 Mo. 622); White v. Campbell, 5 Humph. (Tenn.) 38; 
Russell v. Topping, 5 McLean (U. S.) 194, 202 (but this cannot stand after Smith v. 



47° HARVARD LAW REVIEW. 

may be given to the conveyance at law, — that the title may be 
held to vest in the associates as natural persons (and this would 
obviate inquiry into the question of actual consideration). 23 The 



Sheeley, 12 Wall. (U. S.) 358). See also Provost v. Morgan's Co., 42 La. Ann. 809; 
German Ass'n v. Scholler, 10 Minn. 331 ; Valk v. Crandall, 1 Sandf. Ch. (N. Y.) 179, 
182 ; Childs v. Hurd, 32 W. Va. 66, 100. 

But, by the more recent decisions, it is held that (at least if the requirements of the 
de facto doctrine are satisfied) the grantor and those in privity with him are estopped 
to assert title against the associates (see note 33). Cahall v. Citizens' Ass'n, 61 Ala. 
232 ; Bates v. Wilson, 14 Colo. 140 ; Thompson v. Candor, 60 111. 244 ; The Joliet v. 
Frances, 85 111. App. 243; Baker v. Neff, 73 Ind. 6S; Williamson v. Kokomo Ass'n, 
89 Ind. 389 (junior mortgagee cannot defeat prior mortgage to de facto corporation) ; 
Sword v. Wickersham, 29 Kan. 746 ; Reinhard v. Virginia Co., 107 Mo. 616 (and cases 
cited) ; Frost v. Frostburg Co., 24 How. (U. S.) 278. See also Keene v. Van Reuth, 
48 Md. 184; Packard v. Old Colony Co., 168 Mass. 92, 96; Smith v. Sheeley, 12 Wall. 
(U. S.) 358. But cf Jones v. Aspen Hardware Co., 21 Colo. 263. 

In Otoe Ass'n v. Roman, 95 N. W. Rep. 327 (Neb.), a de facto corporation maintained 
a proceeding against its grantor for reformation of the deed. 

On a grant by a municipal corporation of a franchise to a de facto corporation, see 
Kalamazoo v. Kalamazoo Co., 124 Mich. 74. 

In Whipple v. Parker, 29 Mich. 369, Christiancy, J., said (p. 381) : " Courts of equity 
at least, if not also courts of law, would find no difficulty in recognizing their property 
rights as individuals, or in securing to them as a partnership, or as joint owners, or as 
individuals, in some form the full enjoyment of their rights." Note also Burton v. 
Schildbach, 45 Mich. 504. 

On the right to maintain ejectment in the name of the grantor, note that the grantee 
of a disseisee might maintain ejectment in the name of his grantor. See McMahan v. 
Bowe, 114 Mass. 140, 145. 

23 In Maugham v. Sharpe, 17 C. B. (n. s.) 443, chattels were mortgaged to "The City 
Investment and Advance Company." The mortgagor believed he was conveying to a 
corporation (per Erie, C. J., at p. 462); but there was no such corporation authorized 
by the state. The court held that the title passed to the individuals doing business 
under that name. Williams, J., said (p. 463) : " I apprehend, the meaning of the grant 
is plain : the deed purports and intends to convey the goods to those persons who use 
the style and firm of The City Investment and Advance Company. They may or may 
not be a corporation ; but when it is ascertained that those who carry on business under 
that name are the defendants, the deed operates to convey the property to them." 
Jones v. Aspen Co., 21 Colo. 263, 271 ; New Haven Wire Co. Cases, 57 Conn. 352, 
394 ; accord. See also Farnsworth v. Drake, 11 Ind. 101 ; Fay v. Noble, 7 Cush. (Mass.) 
188, 194; American Silk Works v. Salomon, 6 T. & C. (N. Y.) 352. On a charitable 
bequest to a de facto corporation, note Quinn v. Shields, 62 la. 129 (in connection with 
Miller v. Chittenden, 2 la. 315, and Grant v. Saunders, 121 la. 80) ; Lutheran Church 
v. Mook, 4 Redf. Sur. (N. Y.) 513. 

The English courts would follow Maugham v. Sharpe, if the subject of the convey- 
ance was realty. Wray v. Wray, [1905] 2 Ch. 349. In Byam v. Bickford, 140 Mass. 
31, Devens, J., said (p. 32) : " But the South Chelmsford Hall Association was a body 
well known, all the members of which could be ascertained ; and, as it could not take 
as a corporation, the deed may properly be construed as a grant of the estate to those 
who were properly described by this title. . . . The persons associated in the society 
were thus tenants in common of the land conveyed." See also Hart v. Seymour, 147 



DE FACTO CORPORATIONS. 47 1 

associates are therefore asserting a property right which they are 
entitled to assert in some form. Looking at the substance, and 
not the form, the case will rarely, if ever, arise where X is preju- 
diced if the associates are allowed to assert the right as an artificial 
person. 24 Similarly, if X makes a note payable to A, and A nego- 
tiates it to a de facto corporation, and suit is brought in the name 
of the corporation against A. 25 

But it would seem to be clear that there should be no sweeping 
doctrine to the effect that a de facto corporation may (unless 
checked by the state) exercise the same powers and privileges as 

111. 598, 610 ; Clifton Heights Co. v. Randell, 82 la. 89 ; Friedman v. Goodwin, 9 Fed. 
Cas. 818. 

And conversely a conveyance of realty to the " Asheville Division No. 15 " will pass 
title to such corporation, although the grantor supposed he was conveying to a voluntary 
association. Asheville Division v. Aston, 92 N. C. 578. 

On a deed to A and " associates," see Ennis v. Brown, 1 N. Y. App. Div. 22. 
On whether a title in natural persons will, upon their incorporation, pass to the cor- 
poration without formal transfer, see McCandless v. Inland Acid Co., 112 Ga. 291 ; 
Land Co. v. Randell, 82 la. 89 ; Catholic Church v. Tobbein, 82 Mo. 418 ; American 
Silk Works v. Salomon, 6 T. & C. (N. Y.) 352. 

24 A de facto corporation may maintain ejectment against a person who has not dealt 
with the associates as a corporation. East Norway Church v. Froislie, 37 Minn. 447, 
451 ("It would be unjust and intolerable if . . . every interloper and intruder were 
allowed thus to take advantage of every informality or irregularity of organization") ; 
Chiniquy v. Bishop of Chicago, 41 111. 148. But cf. Proprietors of Southoldw. Horton, 
6 Hill (N. Y.) 501 ; Augusta Co. v. Vertrees, 4 Lea (Tenn.) 75. 

It may maintain an action for a tort to real or personal property. Buffalo Co. v. 
Cary, 26 N. Y. 75, 77-78; Remington Co. v. O'Dougherty, 65 N. Y. 570 (conversion) ; 
Persse Works v. Willett, 1 Rob. (N. Y.) 131 (trespass upon personalty) ; American Silk 
Works v. Salomon, 6 T. & C. (N. Y.) 352 (conversion) ; Elizabeth Academy v. Lindsey, 
6 Ired. (N. C.) 476 (conversion); Searsburgh Co. v. Cutler, 6 Vt. 315, 323 (" For the 
purpose ... of protecting the property . . . from tortfeasors, it is enough to shew a 
corporation de facto ") ; Baltimore Co. v. Baptist Church, 137 U. S. 568,572 (nuisance. 
Per Gray, J., a de facto corporation may "maintain an action against any one, other 
than the state, who has contracted with the corporation, or who has done it a wrong") ; 
American Co. v. New York, 68 Fed. Rep. 227 (infringement of patent). 

It may maintain a bill for an injunction to restrain irreparable injury to property. 
Cincinnati Co. v. Danville Co., 75 111. 113 ; Williams v. Citizens' Co., 130 Ind. 71. See 
also Denver v. Mullen, 7 Colo. 345. 

But cf. Slocum v. Providence Co., 10 R. I. 112, 114. 

26 Cozzens v. Chicago Co., 166 111. 213; Wilcox v. Toledo Co., 43 Mich. 584, 590; 
Haas v. Bank of Commerce, 41 Neb. 754. See also Mix v. Bank of Bloomington, 91 
111. 20; Chicago Co. v. Stafford County, 36 Kan. 121, 128. Cf Marion Bank v. Dun- 
kin, 54 Ala. 471 ; Hungerford Bank v. Van Nostrand, 106 Mass. 559. 

An association de facto may recover for use and occupation of land. Philippine 
Sugar Co. v. U. S., 39 Ct. CI. 225. 

A grants land to a de facto corporation. It may maintain proceedings to have the 
land discharged from the incumbrance of a judgment against A. Keyes v. Smith, 67 
N. J. L. 190. 



472 HARVARD LAW REVIEW. 

a de jure corporation. The doctrine should never be applied, 
in favor of the associates themselves, to the prejudice of a person 
who has not dealt with them as a corporation. 

Suppose A agrees to take and pay for stock in the X corpora- 
tion when formed. Only a de facto corporation is formed. If a 
de jure corporation had been formed, it could have compelled A 
to pay for the stock. 26 But the de facto corporation has no such 
right. 27 

Suppose the legislature has authorized the formation of railroad 
corporations and has authorized such corporations to condemn 
land. Only a de facto railroad corporation is formed. It cannot 
take land against the will of the owner. 28 

To return to the case put in the opening paragraph. If persons 

26 Athol Co. v. Carey, 116 Mass. 471. 

27 Schloss v. Montgomery Co., 87 Ala. 411 ; Indianapolis Co. v. Herkimer, 46 Ind. 
142 ; Nelson v. Blakey, 47 Ind. 38 ; Reed v. Richmond Co., 50 Ind. 342, 83 Ind. 9 ; 
Rikhoff v. Brown's Co., 68 Ind. 388; Coppage v. Hutton, 124 Ind. 401; Allman v. 
Havana Co., 88 111. 521 ; Richmond Ass'n v. Clarke, 61 Me. 351 ; Taggart v. Western 
Co., 24 Md. 563; Katama Land Co.w. Holley, 129 Mass. 540; Columbia Co. v. Dixon, 
46 Minn. 463, 465 ; Capps v. Hastings Co., 40 Neb. 470 ; Dorris v. Sweeney, 60 N. Y- 
463; Greenbrier Exposition v. Rodes, 37 W. Va. 738. See also Mclntire v. McLain 
Ass'n, 40 Ind. 104; Stowe v. Flagg, 72 111. 397; Mansfield Co. v. Drinker, 30 Mich. 
124 ; Crocker v. Crane, 21 Wend. (N. Y.) 211 ; Wilmington Co. v. Wright, 5 Jones 
(N. C.) 304. But cf. Willard v. Church of Rockville Centre, 66 111. 55. 

But otherwise if the subscriber took part in the attempt to incorporate, or thereafter 
assented to treat with the corporation as though it had been lawfully formed (see 
note 33). Selma v. Tipton, 5 Ala. 787, 807 ; Danbury Co. v. Wilson, 22 Conn. 435 ; 
Hause v. Mannheimer, 67 Minn. 194; Cayuga Co. v. Kyle, 64 N. Y. 185; United 
Growers Co. v. Eisner, 22 N. Y. App. Div. 1 ; Tar River Co. v. Neal, 3 Hawks (N. C.) 
520 ; Rockville Turnpike Road v. Van Ness, 2 Cranch C. C. (U. S.) 449. 

See also Childs v. Smith, 46 N. Y. 34. 

28 Piper v. Rhodes, 30 Ind. 309 (assessment by de facto turnpike company) ; Mclntire 
v. McLain Ass'n, 40 Ind. 104 (assessment by de facto drainage company) ; Newton Co. 
v. Nofsinger, 43 Ind. 566(same) ; Knights. Flatrock Co., 45 Ind. 134 (assessment of tax 
in aid of de facto turnpike company) ; Williamson v. Kokomo Ass'n, 89 Ind. 389, 392 
(condemnation. In Boyd v. Traction Co., 161 Ind. 587, 589, the court did not find 
it necessary to decide the point) ; Hopkins v. Kansas City Co., 79 Mo. 98 (condem- 
nation); St. Joseph Co. v. Shambaugh, 106 Mo. 557, 566 (condemnation) ; Hampton 
v. Clinton Co., 65 N. J. L. 158, 160 ("There is no doubt that noncompliance with 
conditions precedent to incorporation will defeat a condemnation ") ; N. Y. Cable 
Co. v. N. Y., 104 N. Y. 1, 43 (condemnation) ; Matter of Union Co., 112 N. Y. 61 
(same) ; Matter of New York Co., 35 Hun (N. Y.) 220 (same. On appeal, 99 N. Y. 
12); Matter of Broadway Co., 73 Hun (N. Y.) 7, 13 (same) ; Kinston Co. v. Stroud, 
132 N. C. 413 (same. Cf. Wellington Co. v. Cashie Co., 114 N. C. 690. As to latter 
case, see note 12) ; Atlantic Co. v. Sullivant, 5 Oh. St. 276 (same) ; Atkinson v. Marietta 
Co., 15 Oh. St. 21 (same) ; Powers v. Hazelton Co., 33 Oh. St. 429 (same) ; Tulare 
District v. Shepard, 185 U. S. I, 17 (same). See also Niemeyer v. Little Rock Ry., 
43 Ark. in ; Fales v. Whiting, 7 Pick. (Mass.) 225; Trenton Co. v. United Co., 60 



DE FACTO CORPORATIONS. 473 

employ agents, they are responsible for the torts of those agents 
while they are acting within the scope of their employment. Per- 
sons injured by such torts have a well-established common law right 
to call upon the principal to respond. Now the legislature has au- 
thorized those persons who do specified acts to exercise the privi- 
lege of acting as an artificial person, — of holding property and 
appointing agents as such artificial person. If the specified acts 
are done, the artificial person becomes the principal, and redress 
may be had only out of the property of this principal. But per- 
sons who have not done the specified acts should not be given 
this immunity, which is dependent upon incorporation. 

The subscriber to stock of a corporation to be formed has a 
right, under that portion of the common law which deals with con- 
tracts, to have stock of a corporation authorized by the state. 
The courts ought not to ignore or impair that right. The person 
injured by the tort of the servant has a right, under that portion of 
the common law which deals with torts and agents, to have the 
master respond. The courts ought not to ignore or impair that 
right. 

It may be urged that the exercise of the power of eminent do- 
main is much more important than the exercise of the power to 
appoint an agent as an artificial person. The exercise of such a 
power is indeed a high act of sovereignty, and this consideration 
must incline courts to construe grants of the power with great 
strictness. 29 The grant of a power to appoint an agent as an arti- 
ficial person might not be construed with the same strictness. But 
neither power can be exercised except upon the terms laid down 



N. J. Eq. 500; Farnham v. Benedict, 107 N. Y. 159; New Orleans Co. v. Louisiana 
Co., 11 Fed. Rep. 277. 

There is considerable authority opposed to the text. Central of Georgia Co. v. 
Union Springs Co., 144 Ala. 639; McAuley v. Columbus Co., 83 111. 348 ; Peoria Co. 
p.Peoria Co., 105 111. no; Chicago Co. v. Chicago Co., 112 111. 589; Morrison v. 
Forman, 177 111. 427 ; Eddeeman v. Union Co., 217 111. 409, 414 ; Detroit Co. v. Camp- 
bell, 140 Mich. 384, 394 (relying on 44 Mich. 387, and 81 Mich. 378, which only decided 
that the question could not be litigated in certiorari proceedings) ; Postal Co. v. Oregon 
Co., 23 Utah 474, 482. See also Osborn v. People, 103 111. 224 ; Ward v. Minnesota 
Co., 119 111. 287 ; Reisner v. Strong, 24 Kan. 410, 417 ; Portland Co. v. Bobb, 88 Ky. 
226; Farnham v. Delaware Co., 61 Pa. St. 265. But note the explanation of the Illi- 
nois doctrine made in Henry v. Centralia Co., 121 111. 264, 267. 

On the litigation of this question in certiorari proceedings, see Schroeder v. Detroit 
Co., 44 Mich. 387 ; Traverse Co. v. Seymour, 81 Mich. 378 ; State v. Egg Harbor City, 
55 N. J. L. 245. 
29 Matter of Poughkeepsie Bridge Co., 108 N. Y. 483. 



474 HARVARD LAW REVIEW. 

by the legislature. When the terms are ascertained by a proper 
construction of the legislative grants, it is no more proper for the 
courts to vary those terms in one case than in the other. 

Compare the consequences of the exercise of these two powers 
to the person against whom they are asserted. In the one case his 
land is taken from him against his will, but the fair value is paid 
him. In the second case his body is injured, without his fault, 
and he is referred to an empty treasury for compensation. 30 

80 Authorities bearing on the case put in the opening paragraph of the text are as 
follows. In Vredenburg v. Behan, 33 La. Ann. 627, the plaintiff sued on account of 
damage done by an animal kept by the " Crescent City Rifle Club." The defendants 
contended that this club was a corporation, and that the corporation alone was 
liable for the tort. The court held that the statutes of Louisiana did not author- 
ize the formation of such a corporation, and that the defendants — members of the 
club — were personally liable. "It is a principle of law that cannot be successfully 
controverted, that where persons sought to be made liable for their acts, imprudence, 
or negligence, seek to escape such liability by pleading some privilege or immunity 
in derogation of common right, they must clearly establish the existence of the same, 
and bring themselves strictly within the provisions of the law on which they rest such 
claim " (p. 635). (It may be suggested that Article 446 of the Civil Code prevents all 
recognition of the de facto doctrine, and that therefore the reasoning of this case has 
no bearing upon the proper scope of such a doctrine ; but it has not been so con- 
strued. For applications of the de facto doctrine see Blanc v. Germania Bank, 1 14 La. 
739, and cases cited.) 

In Smith v. Warden, 86 Mo. 382, the plaintiff sued on account of a tort committed 
by an agent of the defendants. The defendants contended that the tortfeasor was 
agent of a limited partnership, and that this partnership alone was liable, as master, 
for the tort. But the court held that one of the acts which was a prerequisite to the 
formation of such a limited partnership had not been performed, and that the de- 
fendants — who were assuming to do business as such limited partnership — were 
personally liable. 

Lamming v. Galusha, 81 Hun (N. Y.) 247 (aff. 151 N. Y. 648), is against the text. 
But it may be noted: (1) the plaintiff's predecessor in title had given a written consent 
for the construction of the railroad, which consent was intended to operate " as some- 
thing more than a mere license." The railroad had been constructed at the time the 
plaintiff bought, and the associates were openly asserting their right to act as a corpo- 
ration. The plaintiff did nothing for eight years. He then asked for an injunction 
and damages. (2) The opinion is of a single justice sitting at special term. He seems to 
have been of the opinion (p. 252) that, if there was not substantial compliance with all 
the provisions of the statute, there would not be a corporation dcjure (see notes 17 and 
18). He relies on California cases decided after the statute respecting de facto cor- 
porations had been passed (see note 20), and his attention seems not to have been 
called to the statute. 

In Guckert v. Hacke, 159 Pa. St. 303, A contracted with the associates. The 
associates intended to contract as a corporation, and the requirements of the de facto 
doctrine were satisfied. But a condition precedent to the formation of a corporation 
had not been performed, and A did not know that the associates were assuming to 
contract as a corporation. Held, that A, since he was not estopped (see note 33), 



DE FACTO CORPORATIONS. 475 

We have thus far assumed that A, against whom the de facto 
doctrine is asserted, has not, by dealings with the associates, recog- 
nized their right to act as a corporation. But if the associates as- 
sume to act as a corporation, and A is content to deal with them 
as a corporation, entirely new considerations present themselves. 
True it is that the associates had not the corporate privilege, but 
does it lie in A's mouth to plead this ? 

If A, suing for a breach of a contract made under such circum- 
stances, chose to name the alleged corporation as party defendant, 
the associates could not in fairness ask to show that, though they 
had represented themselves to be a corporation and had contracted 
with A on that basis, yet, nevertheless, owing to their failure to 
comply with the statutory requirements, they had had no authority 
to act as a corporation. 

The converse is not so clear. A never represented that the as- 
sociates were a corporation ; he simply acted on their own repre- 
sentation. Nevertheless, he has consented to enter into a contract 
with the associates on a corporate basis. The associates expected 
to be shielded, by their possession of the corporate privilege, 

could hold the associates personally liable for a breach of the contract. Christian 
Co. v. Lumber Co., 121 Ala. 340; Field v. Cooks, 16 La. Ann. 153; N. Y. Bank v. 
Crowell, 177 Pa. St. 313; Slocum v. Head, 105 Wis. 431 ; Clausen v. Head, no Wis. 
405; accord. See also Williams v. Hewitt, 47 La. Ann. 1076, 1082; Johnson v Oker- 
strom, 70 Minn. 303, 311 ; Queen City Co. v. Crawford, 127 Mo. 356, 363 ; Vanhorn v. 
Corcoran, 127 Pa. St. 255, 268 {cf. Allegheny Bank v. Bailey, 147 Pa. St. in); 
Mitchell v. Jensen, 29 Utah 346, 360. 

Hampton v. Clinton Co., 65 N.J. L. 158, 160. "The cases to which we have been 
referred, as holding that persons dealing with de facto corporations are estopped from 
denying their legal existence and that such corporations may, by actions at law, pro- 
tect their rights and property against invasion, are not applicable to the present 
controversy. Here there is an attempt to take the property of a citizen against 
his will." 

Searsburgh Co. v. Cutler, 6 Vt. 315, 323. " Where an authority is claimed, by virtue 
of corporate powers, to interfere with the person or property of the citizen, greater 
strictness is required." 

Slocum v. Head, 105 Wis. 431, 434 (paraphrased). An examination of all the author- 
ities, however, limits the immunity from personal liability, which may be claimed by 
those who have in good faith attempted to organize and do business as corporations, 
to transactions with persons who have dealt with them as a corporation. 

Note also the restrained language of Mr. Justice Gray in Baltimore Co. v. Baptist 
Church, 137 U. S. 568, 571, 572. A de facto corporation may "maintain an action 
against any one, other than the state, who has contracted with the corporation, or 
who has done it a wrong." To the same effect are Tar River Co. v. Neal, 3 Hawks 
(N. C.) 520, 537 ; Savings Bank Co. v. Miller, 24 Oh. Circ. Ct. Rep. 198, 206. And see 
the Iowa and Kentucky statutes (note 20). 



47<5 HARVARD LAW REVIEW. 

against unlimited liability for a breach of the contract, and A may 
fairly be charged with knowledge of this. In consenting to con- 
tract with them as a corporation, he has, by necessary inference, 
consented to avail himself on a breach of the contract of only 
such remedies as could be used if the associates possessed the 
corporate privilege- " Upon broad grounds of right, justice, and 
equity," S1 A ought not, with his eyes open, to enter into a contract 
which assumes the existence of a corporation, and then ask for 
remedies which involve a denial of such existence. In a word, 
not only against the associates, but against A, there is the proper 
basis for the argument ad hominem. 

While, however, it is fair between the parties that a contract 
made on a corporate basis should be enforced on the same basis, 
is it not against public policy thus to allow parties to create pro 
tanto corporations at their will? A court might consider this ob- 
jection fatal ; and, even when A sues the corporation, and shows 
that the requirements of the de facto doctrine are satisfied, it might 
permit the associates to take advantage of their own failure to 
observe the statutes. 32 But it is rare for a court to take this 
extreme position. 

It is in this connection that the courts make the most important 
application of the de facto conception. If associates have assumed 
to contract as a corporation, and the requirements of the de facto 
doctrine are satisfied, then, ordinarily, there will be no sufficient 
objection, on the ground of public policy, to permitting both par- 
ties to the contract to have such remedies, and such remedies only, 
as would be permitted if a dejure corporation had been formed. 88 

81 Per Cooley, J., in Swartwout v. Michigan Co., 24 Mich. 389, 396. 

82 So held in Boyce v. Towsontown Church, 46 Md. 359. 

83 The associates, if sued as a corporation, cannot defend on the ground that they 
were not authorized to act as a corporation when the contract was made. Georgia Ice 
Co. v. Porter, 70 Ga. 637 ; Racine Co. v. Farmers' Trust Co., 49 111. 331, 346 (cf. Gent 
v. Manufacturers Co., 107 111. 652) ; Humphrey v. Patrons-' Ass'n, 50 la. 607 {.cf. Kirk- 
patrick -v. Church of Keota, 63 la. 372) ; Dooley v. Cheshire Glass Co., 15 Gray (Mass.) 
494 ; Kelley v. Newburyport Co., 141 Mass. 4.96 ; Empire Co. v. Stuart, 46 Mich. 482 ; 
Scheufler v. Grand Lodge, 45 Minn. 256; Callender v. Painesville Co., 11 Oh. St. 516; 
Hamilton v. Clarion Co., 144 Pa. St. 34; Liter v. Ozokerite Co., 7 Utah 487 ; Toledo 
Co. v. Continental Trust Co., 95 Fed. Rep. 497, 507. See also McCullough v. Talla- 
dega Co., 46 Ala. 376 ; Wood v. Wiley Construction Co., 56 Conn. 87 ; Commonwealth 
v. Licking Valley Ass'n, 1 18 Ky. 791 ; Perine v. Grand Lodge, 48 Minn. 82 ; Rush v. 
Halcyon Co., 84 N. C. 702 ; Miss. Code, § 841. Contra, Boyce v. Towsontown Church, 
46 Md. 359 (but cf. Franz v. Teutonia Ass'n, 24 Md. 259; Keene v. Van Reuth, 48 
Md. 184; Bartlett v. Wilbur, 53 Md. 485, 498). 

The state may properly make a de facto corporation sole defendant (not joining the 



DE FACTO CORPORATIONS. 477 

Whether, when the requirements of the de facto doctrine have 

associates) in a quo warranto proceeding. New Orleans Co. v. Louisiana, 180 U. S. 
320. 

Similarly, a creditor may hold the defendant, as a stockholder, director, or officer, 
to such liability as would have attached to him if the associates had been authorized to 
act as a corporation when the contract was made. Lehman v. Warner, 61 Ala. 455 ; 
Central Ass'n v. Alabama Co., 70 Ala. 120 ; Harris v. Gateway Co., 128 Ala. 652 ; Cor- 
with v. Culver, 69 111. 502 ; Wheelock v. Kost, 77 111. 296 ; Tanner v. Nichols, 80 S. W. 
Rep. 225 (Ky.) ; Priest v. Essex Hat Co., 115 Mass. 380 ; Eaton v. Aspinwall, 19 N. Y. 
119 (see also 26 Barb. (N. Y.) 202); Perkins v. Hatch, 4 Hun (N. Y.) 137 ; Rowland v. 
Meader Co., 38 Oh. St. 269, 272 (citing 33 Oh. St 107) ; Hamilton v. Clarion Co., 
144 Pa. St. 34 ; Slocum v. Providence Co., 10 R. 1. 1 12 ; Slocum v. Warren, 10 R. I. 116. 
See also Peel's Case, L. R. 2 Ch. 674. Cf. Utley v. Union Tool Co., 11 Gray (Mass.) 
139; DeWitt v. Hastings, 69 N. Y. 518; Gardner v. Post, 43 Pa. St. 19. 

One of the associates cannot take advantage, against his fellow associates, of the 
lack of authority to act as a corporation. Merchants Line v. Waganer, 71 Ala. 581, 585 ; 
Bushnell v. Consolidated Ice Co., 138 III. 67; Curtis v. Tracy, 169 111. 233; Lincoln 
Park v. Swatek, 204 111. 228; Heald v. Owen, 79 la. 23; Venable v. Atchison Church, 
25 Kan. 177 ; Foster v. Moulton, 35 Minn. 458; Raisbeck v. Oesterricher, 4 Abb. N. C. 
(N. Y.) 444; Marsh v. Mathias, 19 Utah 350; Franke v. Mann, 106 Wis. 118. See also 
Baker v. Backus, 32 111. 79. Cf. Flagg v. Stowe, 85 111. 164; Doyle v. Mizner, 42 Mich. 
332. If one of the associates is, owing to the lack of authority, subjected to personal 
liability, he may have contribution. Richardson v. Pitts, 71 Mo. 128 ; Aspinwall v. 
Sacchi, 57 N. Y. 331. Cf. Heald v. Owen, 79 la. 23. 

Conversely, the body of associates cannot take advantage of such lack against one 
of their number. M eurer v - Detroit Ass'n, 95 Mich. 451. 

If A promises B a commission for selling property to C, or any corporation organ- 
ized by him, and a de facto corporation, organized by C, purchases the property, B is 
entitled to his commission. Smith v. Mayfield, 163 111. 447. 

If A contracts with the associates as a corporation, and A is sued upon the contract 
in the name of the corporation, he cannot take advantage of their lack of authority 
to act as a corporation. Bibb v. Hall, 101 Ala. 79 ; Canfield v. Gregory, 66 Conn. 9 ; 
Wood v. Coosa Co., 32 Ga. 273; Petty v. Brunswick Co., 109 Ga. 666; Marsh v. 
Astoria Lodge, 27 111. 421; Ramsey v. Peoria Co., 55 111. 311; Hudson v. Green 
Hill Corporation, 113 111. 618; Brownlee v. Ohio Co., 18 Ind. 68; Bartholomew 
County v. Bright, 18 Ind. 93 ; Mullen v. Beech Grove Park, 64 Ind. 202 ; Beatty v. 
Bartholomew Society, 76 Ind. 91; Jones v. Kokomo Ass'n, 77 Ind. 340; Smelser v. 
Wayne Co., 82 Ind. 417; Cravens v. Eagle Co., 120 Ind. 6; Washington College 
v. Duke, 14 la. 14; Hunt v. Kansas Co., 11 Kan. 412; Gill v. Kentucky Co., 
7 Bush (Ky.) 635; Seven Star Grange v. Ferguson, 98 Me. 176; Worcester Medical 
Institution v. Harding, n Cush. (Mass.) 285; Butchers' Bank v. McDonald, 130 Mass. 
264; Cahill v. Kalamazoo Co., 2 Doug. (Mich.) 124; Swartwout v. Michigan Co., 24 
Mich. 389 ; Estey Co. v. Runnels, 55 Mich. 130 ; Stofflet v. Strome, 101 Mich. 197 ; 
French v. Donohue, 29 Minn, m ; Minnesota Co. v. Denslow, 46 Minn. 171 ; Lincoln 
Ass'n v. Graham, 7 Neb. 173; Livingston Ass'n v. Drummond, 49 Neb. 200; Equitable 
Ass'n v. Bidwell, 60 Neb. 169; Ossipee Co. v. Canney, 54 N. H. 295 (explaining Unity 
Co. v. Cram, 43 N. H. 636) ; Way v. American Grease Co., 60 N. J. Eq. 263, 266 ; 
Methodist Church v. Pickett, 19 N. Y. 482; Leonardsville Bank v. Willard, 25 N. Y. 
574 ; Buffalo Co. v. Cary, 26 N. Y. 75 ; Phoenix Co. v. Badger, 67 N. Y. 294, 298 ; Com- 



478 HARVARD LAW REVIEW. 

not been satisfied, considerations of public policy will prevent 

mercial Bank v. Pfeiffer, 108 N. Y. 242, 254 (to same effect, 15 Abb. Pr. (N. Y.) 66; 
33 N. Y. App. Div. 231 ; 43 N. Y. App. Div. 386; 48 N. Y. App. Div. 359; 24 Barb. 
(N. Y.) 395; 37 Barb. (N. Y.) 601 ; 42 Barb. (N. Y.) 651 ; 4 Den. (N. Y.) 392; 1 Hall 
(N. Y.) 191; 6 Hun (N. Y.) 71; 91 Hun (N. Y.) 236; 14 Johns. (N. Y.) 238; 3 
Sandf. (N. Y.) 161 ; 3 T. & C. (N. Y.) 304. Wellahd Co. v. Hathaway, 8 Wend. (N. Y.) 
480, and First Baptist Church v. Rapalee, 16 Wend. (N. Y.) 605, can no longer be con- 
sidered law); Bank of Circleville v. Renick, 15 Oh. 322; Lucas v. Greenville Ass'n, 22 
Oh. St. 339; Hagerhian v. Ohio Ass'n, 25 Oh. St. 186; Washington Ass'n v. Stanley, 
38 Ore. 319, 327 ; Dyer v. Walker, 40 Pa. St. 157 ; Spahr v. Farmers' Bank, 94 Pa. St. 
429; Providence Co. v. Murphy, 8 R. I. 131 ; Merriman v. Magiveny, 12 Heisk. (Tenn.) 
494 ; Singer Co. v. Bennett, 28 W. Va. 16 ; Bon Aqua Co. v. Standard Co., 34 W. Va. 
764 ; Gilman v. Druse, 1 1 1 Wis. 400 ; Chubb v. Upton, 95 U. S. 665 ; Andes v. Ely, 1 58 
U. S. 312, 322 (to same effect, no Fed. Rep. 845; 113 Fed. Rep. 398; 118 Fed. Rep. 
190; 28 Fed. Cas. 839). See also West Winsted Bank v. Ford, 27 Conn. 282; Im- 
boden v. Etowah Co., 70 Ga. 86, 107; Blanc v. Germania Bank, 114 La. 739; Chester 
Glass Co. v. Dewey, 16 Mass. 94, 101 ; Quincy Canal v. Newcomb, 7 Met. (Mass.) 
276, 282; Dooley v. Wolcott, 4 Allen (Mass.) 406; Appleton Co. v. Jesser, 5 Allen 
(Mass.) 446; Augur Co. v. Whittier, 117 Mass. 451, 455 ; Williamsburg Co. v. Froth- 
ingham, 122 Mass 391; Provident Institution v. Burnham, 128 Mass. 458; Mann v. 
Williams, 143 Mass. 394; Chase's Co. v. Boston Co., 152 Mass. 428; Kansas City Co. 
v. Hunt, 57 Mo. 126; Johnston Co. v. Clark, 30 Minn. 308 ; Fayetteville Co. v. Tilling- 
hast, 119 N. C. 343 (lease) ; Rafferty v. Bank of Jersey City, 33 N. J. L. 368 (preferred 
creditor) ; Central Co. v. Clayes, 21 Vt. 30. Cf. Card v. Moore, 68 N. Y. App. Div. 
327; aff. 173 N. Y. 598. 

But there may be considerations of public policy so strong that they overcome the 
considerations of fairness between the parties. See Jones v. Aspen Hardware Co., 
21 Colo. 263. 

On conveyances to a de facto corporation, see second paragraph of note 22. 

On an action in tort, where " its necessary basis is in the rights of a passenger, by 
virtue of the contract," see Pinkerton v. Pennsylvania Co., 193 Pa. St. 229, 234. 

If A contracts with the associates as a corporation, A cannot, because of their lack 
of authority to act as a corporation, hold the associates personally liable for a breach 
of the contract. Sniders' Co. v. Troy, 91 Ala. 224; Cory v. Lee, 93 Ala. 468; 
Owensboro Co. v. Bliss, 132 Ala. 253 ; Humphreys v. Mooney, 5 Colo. 282 ; Staf- 
ford Bank v. Palmer, 47 Conn. 443 ; Canfield v. Gregory, 66 Conn. 9, 17 ; Planters' 
Bank v. Padgett, 69 Ga. 159; Doty v. Patterson, 155 Ind. 60; Trowbridge v. Scud- 
der, n Cush. (Mass.) 83; Merchants Bank v. Stone, 38 Mich. 779; American Co. 
v. Bulkley, 107 Mich. 447 ; Love v. Ramsey, 139 Mich. 47 ; Finnegan v. Noerenberg, 
52 Minn. 239 ; Johnson v. Okerstrom, 70 Minn. 303 (distinguishing Johnson v. 
Corser, 34 Minn. 355); Richards v. Minnesota Bank, 75 Minn. 196; Kleckner v. 
Turk, 45 Neb. 176; Hogue v. Capital Bank, 47 Neb. 929 (commenting on earlier 
cases and statutes) ; Larned v. Beal, 65 N. H. 184 ; Stout v. Zulick, 48 N. J. L. 599 ; 
Vanneman v. Young, 52 N. J. L. 403 ; Whitford v. Laidler, 94 N. Y. 145, 151 (see also 
Central Bank v. Walker, 66 N. Y. 424 ; but cf. Fuller v. Rowe, 57 N. Y. 23) ; Rowland 
v. Meader Co., 38 Oh. St. 269 ; Mason v. Stevens, 16 S. D. 320 ; Shields v. Clifton 
Co., 94 Tenn. 123; Tennessee Co. v. Massey, 56 S. W. Rep. 35 (Tenn.) ; American 
Co. v. Heidenheimer, 80 Tex. 344 ; Clausen v. Head, no Wis. 405 (see also 32 Wis. 
162 ; but cf. Bergerons. Hobbs, 96 Wis. 641, and 64 Fed. Rep. 90). See also Clark z. 
Richardson, 31 S. W. Rep. (Ky.) 878 ; LaflinCo.i'. Sinsheimer, 46 Md. 315 ; First Bank 



DE FACTO CORPORATIONS. 479 

courts from applying the same doctrine between the parties, is a 
question beyond the limits of this article. 34 

In summary. 

i. When the existence of a corporation is only collaterally in 
issue, proof of facts sufficient to satisfy the requirements of the de 
facto doctrine is sufficient to make a prima facie case. 

2. If a corporation is in existence, but there is a ground upon 
which the state might have its existence forfeited, no one but the 
state can take advantage of this cause of forfeiture. 

3. Most failures to conform strictly to statutory provisions re- 
garding the formation and regulation of corporations are not fatal 
to the formation of a de jure corporation. But failure to perform 
an act, the performance of which the legislature has intended to 
be a condition precedent to incorporation, is necessarily fatal. 

4. There are considerations of public policy so urgent as to 
justify the courts in holding that a de facto corporation may be a 
conduit of title. 

5. The de facto doctrine has a very important scope in cases 
where contracts have been made on a corporate basis. 

6. If associates who have not the corporate privilege assume 
to exercise it, there is no established doctrine that all but the 

v. Almy, 117 Mass. 476 ; Gow v. Collin Co., 109 Mich. 45 ; National Bank v. Rockefeller, 
195 Mo. 15; Second Bank v. Hall, 35 Oh. St. 158; Wentz v. Lowe, 3 Atl. Rep. 878 
(Pa.) ; Cochran v. Arnold, 58 Pa. St. 399; Whitney v. Wyman, 101 U. S. 392. Contra, 
Garnett v. Richardson, 35 Ark. 144 ; Bigelovv v. Gregory, 73 111. 197 ; Kaiser v. 
Lawrence Bank, 56 la. 104; Williams v. Hewitt, 47 La. Ann. 1076: Sentell v. 
Rives, 48 La. Ann. 1214; Hurt v. Salisbury, 55 Mo. 310; Ferris v. Thaw, 72 Mo. 
446 (but cf. Granby Co. v. Richards, 95 Mo. 106, and National Bank v. Rockefeller, 
195 Mo. 15). 

But if persons who assume corporate powers without complying with the statutory 
provisions are, by statute, expressly subjected to individual liability on all contracts 
made in the name of the alleged corporation, then the creditor may hold such persons 
to liability, for otherwise the statutory provision would be nugatory. Loverin v. 
McLaughlin, 161 111. 417, 434 (cf. 83 111. App. 643). To the same effect, on a similar 
statute, are Eisfeld v. Kenworth, 50 la. 389 ; Marshall v. Harris, 55 la. 182 ; Clegg v. 
Hamilton Co., 61 la. 121 ; Heuer v. Carmichael, 82 la. 28S (cf. Bank of Davenport 
v. Davies, 43 la. 424, followed in Jessup v. Carnegie, 80 N. Y. 441) ; Sweney v. 
Talcott, 85 la. 103 ; Thornton v. Balcom, 85 la. 198. And see Stokes v. Findlay, 4 
McCrary (U. S.) 205. 

If A deals with the associates as partners, and thereafter the associates are legally 
incorporated, but continue to deal with A without giving him notice of the incorpora- 
tion, they are liable as partners. Perkins v. Rouss, 78 Miss. 343 ; Martin v. Fewell, 79 
Mo. 401, 412 ; McGowan v. American Co., 121 U. S. 575. 

34 See note 13. 



480 HARVARD LAW REVIEW. 

state must submit. It is not proper to apply to such a case the 
doctrine that the existence of a corporation cannot be attacked 
collaterally. 

7. The de facto doctrine should be applied with caution when 
it is invoked for the benefit of the associates themselves against 
persons who have not dealt with them as a corporation. It is 
anomalous to permit the usurper of a right to require a stranger 
to submit to the assertion of such right. 

8. It is anomalous to bridge a legal gap, even for the benefit of 
a person who has made an expenditure in good faith. 

9. There may be no objection to applying the doctrine for the 
benefit of the associates themselves against strangers, if the asso- 
ciates are asserting a right which is in them either as natural per- 
sons or as a corporation. 

10. The doctrine should never be applied for the benefit of the 
associates themselves to the prejudice of an innocent stranger. 

Edward H. Warren.